Guidance Notes

Key Points to take note of when buying a pharmacy.

Buying your own business is a major decision and it is essential that you do your homework thoroughly beforehand to avoid difficulties later on.

Caveat Emptor (Let the buyer beware)

You are responsible for what you buy and the investments you make, so look at the time and money spent at this stage of the transaction as an investment and not a cost.

You should engage the services of a good solicitor and a good accountant who should be able to give sound advice on all the legal and financial aspects to the transaction. Seek advice and guidance from the pharmaceutical bodies, other pharmacists who have gone the ownership route and of course the management team at Statim, who are dealing with similar situations every day.

There is also a number of specialist pharmacy consultants in the industry who can provide help and guidance usually at reasonable cost. Look for one who has had a particular experience in retail pharmacy and who will visit the pharmacy in question with you to look at the potential and the possible downside.

A number of general points to be aware of and look out for, are highlighted following but please note that this list is not intended to be exhaustive. Retail pharmacy is going through a period of great change and new challenges are presented almost on a daily basis. Those pharmacists who will be successful will be the ones who rise to those challenges and recognise them as opportunities.

General considerations

What is the reason for the sale - is it genuine? Who is the local competition and how close are they? Are there any possible local developments, which could affect the business? Are the doctors planning to move or is the local council considering a new road scheme, which could affect trade? Is there to be a restructure of the provision of primary healthcare in the neighbourhood, perhaps under 'LIFT' (Local Initiative Finance Trust)?

Detailed research in these areas will never be wasted. The number of doctors upon which the pharmacy depends is important. A pharmacy, which depends upon only one doctor, would be at risk should that doctor relocate or retire.

Where are they situated? Buy a local street map and mark all the surgeries and pharmacies. These can be identified through a simple post code search on the NHS website. Follow this link www.nhs.uk and obtain all the information needed with a few clicks of the mouse. Now mark them on the local street map and you will start to get a clear idea of the local layout.

Walk the area to understand the pedestrian flow and to identify what threats and opportunities might arise from relocations of doctors or pharmacies.

The Property

Whether the building is freehold or leasehold, it should be in good condition. If it is not, then funds should be allowed to enable the faults to be rectified. The market price of the freehold should reflect any faults. If the property is leasehold, then the reduction in value will reflect in the goodwill price being paid for the business, as the landlord will almost certainly serve a dilapidation order upon the new owner.

The new owner will then be spending money on repairs, which should have been spent by the previous owner. A building surveyor's report should be obtained prior to completion, to ensure that all major faults are identified. It is quite normal for this to be carried out once Statim has made an offer of guarantee support so that unnecessary expenses are not incurred should the purchase not proceed.

The Lease

The remaining term on the lease to the pharmacy should exceed the term of the proposed loan. Should this not be the case, then it may be necessary to renegotiate a new lease, or at the bare minimum obtain a letter of intent to renew from the landlord. A tenant does have some protection under the Landlord & Tenants Acts, but there are a number of reasons under which a landlord can take back possession should he desire. One of these is for the redevelopment of the site.

Not every situation is black and white and if there is an alternative property into which the pharmacy could locate, then the business could continue, subject to the costs of relocation and refit. The level of rent and the date of the next review are relevant to the goodwill calculation.

Retail Area

The larger the retail area the more shelves there are to be stocked. The average pharmacy is c. 7/800 sq.ft. Anything much larger than this requires good OTC sales to ensure adequate stock turnover.

Opening Hours

The longer the opening hours, the higher the wage bills and the more expensive it will be to obtain locum cover, particularly if open on a Sunday.

Nursing Home Sales

Nursing Homes can be a source of good business but they are labour intensive (monitored dosage systems) and can be susceptible to loss to a competitor. Goodwill value should be adjusted downwards if the number of scripts through homes is a substantial (over 10%) proportion of the total scripts dispensed.

Prescription Numbers

Always obtain at least 12 months monthly NHS statements. These should be the latest available and they will confirm the level of NHS sales turnover, the volume trend and profitability. If the vendor owns other pharmacies nearby, be aware that unfortunately it is not unknown for script numbers to be boosted in the shop to be sold by switching scripts from another outlet.

Summary

These are but some of the areas, which should be examined carefully before you commit yourself to that purchase. Providing you do your homework thoroughly then there is no reason why you should not build a thriving pharmacy business.